Posted on February 17, 2016

What to ask about the 2016 FinAccess report – and how it affects your life!

The financial sector in Kenya theatres the cardinal role of financial intermediation, just like in any other modern economy. Vision 2030 is Kenya’s development blueprint to create a globally competitive and prosperous nation with a high quality of life by the year 2030. While the blueprint is founded on social, political and economic pedestals, the economic pillar contemplates the economy to move up the value chain and ameliorate the prosperity of all regions of the country. The financial services sector is recognised as one of six priority sectors in the current medium term plan for 2013-2017. Specifically, the financial sector’s plan dictates that the goal for the sector will be achieved by deepening the financial markets through enhancing its access, efficiency, and stability. Undeniably, more than a few empirical studies have established significant positive impact of financial sector deepening and broadening on economic growth and development.

It is in cognisance of this gravity of financial markets in reducing poverty, and further, that the extent to which the low-income are able to partake of and benefit from these markets is highly contingent, that makes financial inclusion a foremost policy agenda for the country. In this respect, the Central Bank of Kenya, the Kenya National Bureau of Statistics, and the Financial Sector Deepening Trust (FSD Kenya) have partnered over the past decade in conducting the FinAccess survey every three years, for the purpose of measuring financial access and inclusion, and understanding its dynamics.

The just concluded 2016 FinAccess household survey (to be launched in conjuction with the Central Bank and the Kenya National Bureau of Statistics on 18th February 2016), the fourth round since 2006, lays bare some key insights regarding the use, quality and access to financial services by Kenyans.

Access

We should expect the proportion of the adult population wholly excluded from any form of financial services continues to fall for the period 2006 to 2016. What proportion of the population is currently wholly excluded from any forms of financial services? How does this compare to other years? If the report reveals that access to any form of formal financial service has increased even further from 2013 levels, this would be good news for the regulator who is keen on monetising (digitally) the majority, if not all, of the economic sectors. The government should be equally excited about these figures given that it had set for itself 60% and 80% formal financial and total inclusion targets, respectively, by end of year 2015. With increased financial access, financial service providers should be able to roll out more value-added services to their clients at relatively lower costs, while still adding extra revenue streams to their wallets.

Usage

Bearing in mind the average number of financial transactions per month per user remains relatively low, it would be interesting to see whether the use of financial service providers has increased. In addition, to what extent does such usage vary by livelihood? Does the average user only make occasional use of financial services or are there large numbers of slack users alongside a small count of those who use services more intensively?

Impact

Is our current financial system reaching low-income households? Is financial market development achieving real impact on poverty reduction in Kenya? The portrait emerging in Kenya as of now is one of a financial system which has a remarkable growth pattern coupled with an increasing ability to reach low-income markets, but is yet to stamp a sustained life-transforming impact on low-income individuals, households and firms, especially MSMEs. From different studies though, it is now clear that achieving real impact on poverty through financial market development is far more complex than initially foreseen, mostly due to the inability to attribute impact while at the same time controlling for other confounding macroeconomic phenomena. As and when such impact is verifiable, it will go a long way in lending credence to the age-old entitlement that a mature, robust and well-functioning financial system affords a quantum leap to the livelihoods of the low-income population segments.

Consequent to the foregoing treatise, it is imperative to note that significant impediments to the scale-up of the financial inclusion work in Kenya still exist. These are mainly (i) inferior value in new product propositions at the marketplace, (ii) low trust in some categories of financial institutions and, (iii) high transaction costs. Seemingly, these predominantly supply-side barriers, ought to be transcended to take Kenya to the next level of financial inclusion, and livelihood prosperity in posterity.

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